Our fundamental outlook for the P&C sector is positive, but we feel that stocks are less attractive following their strong recent performance. Given the recovery in valuations, our views on stocks are based more on company-specific factors than on broad sub-sector themes. From a long-term fundamental standpoint, we are most upbeat on brokers, but we believe that brokerage valuations are stretched. Our outlook for the personal and commercial lines businesses is relatively upbeat as well, while we remain negative on reinsurers.

 Reducing 1Q21 EPS estimates; consensus forecasts seem optimistic. We are cutting 1Q21 estimates for most underwriters to reflect higher than previously assumed cat losses, partly offset by strong alternative investment income. Our 1Q21 estimates for most underwriters are below consensus, and we feel that street projections for ACGL, CB, HIG, RNR and TRV are especially optimistic. Meanwhile, we are above consensus on ALL. For 2022, we are below consensus on RNR and HIG, and above for ALL and PGR.

 In our view, business trends will vary considerably by segment. We expect brokers to report improving organic growth and margin expansion in 1Q21 and through the rest of the year. Meanwhile, reported margins for underwriters should be poor in 1Q21 due to high cats. On a core basis, we expect commercial lines margins to improve and personal lines margins to contract as the year progresses. Reinsurance margins should improve as well, but could disappoint expectations if the pace of price increases continues to moderate.

 We expect commentary on pricing trends to be mixed. In our view, pricing in the commercial lines market will continue to firm, primarily given greater discipline on the part of leading underwriters. We expect personal auto prices to remain soft in the near term, but potentially stabilize in the second half of 2021 as frequency continues to pick up. On the other hand, we foresee a deceleration in price hikes in the reinsurance market given the entry of additional capacity. Hence, we recommend those seeking to take advantage of the hardening pricing theme invest in primary commercial stocks (such as CB) and avoid reinsurers.